Insuring Your Company Cars — Who’s Allowed to Drive Them?

When it comes to your own personal car, you probably already know that if you give someone permission to drive it, your own insurance is on the hook if anything goes wrong. That’s pretty cut and dry. But what about your company cars? With employees coming and going, how do you know who’s allowed to drive and who can potentially give you an insurance headache?

It all comes down to permissive use!

This is the same term used on the personal side of things. And, just like on the personal side, permissive use refers to people who you’ve given permission to drive a car that you own. When it comes to a company car, the employees who drive them are typically considered permissive users.

But the word “typically” is very important here. In fact, there are two common instances where you may not have coverage.

If you simply assume that your employees will be covered by your commercial auto insurance if something goes wrong, you could be left high and dry. That’s because some insurance companies will only cover drivers who are actually named on the policy. As a result, if you go out and hire a new employee without adding him to your insurance policy, he won’t be covered if he causes an accident.

Even if your insurance company doesn’t require a list of drivers, you still may run into some trouble. That’s because insurance companies will generally have to do some additional homework if there’s a claim involving an unlisted driver — even if the driver had your explicit permission to use the vehicle. By the time all is said and done, your insurance company may say that permissive use applies, and thus, you’ll be covered. However, it may take them longer to come to this conclusion because they didn’t know anything about the driver when the claim was filed.

These aren’t the only instances where you may run into some problems, though — and that’s why it’s so important to read your policy very carefully.

Most insurance policies have different language in place for company vehicles and hired autos — or, cars that you use but don’t actually own, like a rental car. Remember, your commercial policy lists the specific vehicles that your company owns, and since a rental car isn’t on that list, it won’t be covered if something goes wrong while your employee drives it — unless you have hired auto coverage.

What if one of your employees causes an accident while he was doing something he shouldn’t have been doing?

Just because you’ve dotted all of your I’s and crossed all of your T’s doesn’t mean your employees will have insurance coverage in every single situation. For example, if one of your employees causes an accident because he was driving drunk, your commercial insurance coverage may not kick in. California tends to have a more liberal definition of permissive use — meaning you’re more likely to get coverage in a situation like this — but this doesn’t mean that your employees will automatically be covered if they were doing something prohibited at the time.

What if you allow your employees to drive company cars for their own personal use?

This happens a lot, whether it’s because the company wants the free advertising of their marked vehicles driving around town, or because it’s simply a company perk they’ve decided to offer. Either way, your employees can still be considered permissive users, even if they’re driving off the clock. Since you willingly gave the keys to your employee, your insurance is on the hook if anything goes wrong.

Since the last thing you want to do is expose your business to any more risk than necessary, talk to your insurance agent about permissive use. A good agent will be happy to answer all of your commercial auto insurance questions so that you feel confident handing over the keys to your employees.

Raphael Locsin is the principal agent at Shift Insurance. His goal is to help individuals and companies alike protect their assets and manage liabilities. He created this blog as a way to compile industry knowledge, resources, and general information for the purpose of consumer education.